The used car markets in Europe and the US are poised for a sharp divergence in 2025. In Europe, the used car market faces a potential "cold winter" as price cuts on new electric vehicles (EVs) drive down the appeal and value of used cars. Meanwhile, the US market must grapple with the effects of tariffs introduced under the Trump administration, which could indirectly raise used car prices.
European automakers are required to reduce average vehicle carbon emissions by 15% by 2025 compared to 2021 or face fines amounting to billions of euros. In response, many automakers are taking preemptive steps, including delaying new model launches originally planned for late 2024 to ensure compliance with 2025 regulations.
Nevertheless, industry insiders highlighted persistent consumer concerns about EV driving ranges, charging challenges, and high prices. To address these issues, automakers are turning to aggressive price cuts to stimulate demand and attract buyers. This strategy could spark a price war in the European EV market in 2025, with significant implications for the used car market.
Substantial discounts on new EVs will inevitably drive used car prices downward to maintain an attractive price gap for consumers. Foreign media cited Volkswagen's ID.3 as an example. The model's initial price was EUR44,000, which had already fallen below EUR30,000 by the end of 2024. Meanwhile, the faster depreciation of used EVs than that of gasoline-powered vehicles is likely to worsen in 2025.
In the US, inflation has made used cars, particularly popular gasoline models, more appealing due to their affordability and lower maintenance costs. However, the supply of used cars remains tight, stemming from a decline in rental car turnover rates during the pandemic. Before COVID-19, rental cars accounted for over 30% of new car sales, but this figure dropped to 15% during the pandemic, reducing the supply of vehicles entering the used car market.
The return of Donald Trump as president could further complicate the market. Tariffs on vehicles and parts imported from Mexico and Canada are expected to drive up new car prices, pushing more consumers toward the used car market. This shift could exacerbate supply shortages of used cars and lead to price fluctuations.
Cox Automotive predicts that the tight supply of used cars experienced in 2024 will continue into 2025. This is primarily attributed to an ongoing shortage of used vehicles from the car rental industry, resulting from shorter rental periods
Despite these pressures, Cox Automotive believes that factors such as declining interest rates on new car loans, recovery of new car supply, and the return of pre-pandemic levels of price promotions could moderate price increases in the used car market.
Industry insiders also warned that rapid price cuts on new EVs can significantly destabilize the used car market. This chain reaction is evident in the Chinese market, where many used car dealers, except those representing brands with strong market dominance, are hesitant to acquire used EVs. This reluctance stems from the fear of rapid price drops leading to substantial financial losses
Similarly, in Europe and the US, EV price reductions have already impacted rental car markets. Major rental firms, including Hertz in the US and SIXT in Europe, are shifting back to gasoline-powered vehicles, citing the high maintenance costs and lengthy repair times of EVs.